Who Will Bail Out the Rescuers?

Yesterday, rumors circulated that the Europeans had their problems in hand. The Dow rose 180 points. The euro went up too, and now trades at $1.37. For all the talk of a disintegrating Europe, the euro has been holding together pretty well.

Gold fell $23 for no apparent reason.

As the day went on, however, the euro solution looked less and less like a solution and more like a disaster. Moody’s took Spanish debt down two notches…and warned that it was looking at France. The New York Times has the story:

Moody’s warned late Monday of a possible downgrade to France’s flawless credit rating. French finance officials worry that any such move would make it hard for Paris to negotiate solutions, according to an official who was not authorized to discuss the situation publicly.

The rally in American stock markets was set off by a report late Tuesday on the Web site of The Guardian, a British newspaper, that France and Germany had agreed to increase the size of the rescue fund — the European Financial Stability Facility — to as much as 2 trillion euros to contain the crisis and backstop Europe’s banks. But almost as soon as those hopes soared, European officials quickly brought them back to earth, with denials flooding forth from Brussels, Paris and Berlin.

This latest round of rumors and rebuttals about a European solution was a repeat of earlier situations… Such episodes have played out several times since the debt crisis intensified this year. Most recently, investors have been pegging hopes on a meeting of Europe’s leaders set for this coming Sunday in Brussels, anticipating that a comprehensive solution to the debt crisis might be unveiled.

Now that the rating agencies are circling France, the whole rescue project is in danger. It is one thing for the big, strong nations — France and Germany — to rescue the little, marginal nations, such as Greece and Ireland. But who’s going to rescue France?

At some point, the Europeans are going to be forced to either default honestly and painfully…or to bail themselves out boldly and fraudulently, like the Americans.

Here in Paris, sitting in the Café Vavin, we watch disasters develop on two continents at once.

As to the US mess, we think we understand what is going on. The Americans are on the path of self-destruction. They’ll pick up speed, until they finally reach their destination. But as to what is going on in Europe, we have no better idea than Nicholas Sarkozy or Angela Merkel.

We stick to our guns. Yes, dear readers, guns are what you are probably going to want. Right now, the revolutionaries are mostly peaceful. That’s how revolutions begin. The elites think they can manage the situation. They express their sympathies to the protestors. They promise reforms.

“We are on their side,” says President Obama.

New Yorkers are overwhelmingly behind them. And the press — which ignored them for weeks — suddenly finds nice things to say about their cause, when they can figure out what their cause is.

Later on…when the protestors become more violent and more determined…and after the elites push back…then you’ll wish you had guns.

The police will shoot the protestors. Then, the protestors will shoot the police. They’ll probably both be shooting at you. It will be a real revolution!

And what’s behind it?

Forty-six million people on food stamps.

One hundred million who have not had a real raise in 40 years.

Twenty-five million without real jobs. Twenty million who will never have real jobs.

One out of five mortgaged homeowners who are underwater.

But that’s just the beginning. Wait until the hoi polloi begin to realize how things work.

We remember when the government was throwing money at “minority” contractors back in the ’70s and ’80s. Politicians and lobbyists hustled to find a ‘person of color’ who could be a front man. Savvy businessmen formed new enterprises in their wives’ names. How women got to be a minority we never did understand, but that is how it worked. Maybe it still does. If you were a ‘minority’ you could get special treatment… You could become a zombie.

The next big feeding frenzy was the ‘War on Terror.’ Billions were being spent. Again, the insiders got on the phone and invented businesses to take the money — ‘security’ firms…logistics support…armor and equipment…food…training. Software was a favorite. You could spend billions developing software. Who knew if it worked or not? Arnaud de Borchgrave describes how the supply chain worked:

Billions have vanished into the offshore accounts of American and foreign contractors. In Iraq, an estimated $6.6 billion are unaccounted for.

To power anything at a remote outpost, a gallon of fuel has to be shipped into Karachi, Pakistan, and then driven 800 miles over 18 days to Afghanistan on roads that are sometimes little more than improved goat trails.

There are frequent ambushes by Pakistani bandits or Taliban guerrillas who impose “tolls” — and occasionally blow up tankers so others get the message.

Then, as “green” legislation became a fad, the insiders saw another opportunity. They called in brothers-in-law and old friends. Engineers were hired. Contracts were let. Companies were listed on the public markets. The Bay Citizen, from San Jose, CA, reports:

Three weeks before Solyndra, the solar-panel manufacturer, based in Fremont, declared bankruptcy, the United States Department of Energy issued a $197 million loan guarantee to another Bay Area solar company…

Like Solyndra, which failed despite a $535 million federal loan guarantee, SoloPower, based in San Jose, is a politically connected firm that produces thin film panels built with copper, indium, gallium and selenium (or CIGS) instead of silicon, the basis of most photovoltaic panels.

Energy Department officials have cited a worldwide drop in silicon prices as a major factor in Solyndra’s demise. Some analysts are now looking at SoloPower and asking why the federal government — as it worked furiously to keep Solyndra from going bankrupt — made a major investment in a company that relied on a similar technology.

In its six-year existence, SoloPower has experienced internal discord — it paid a $20 million buyout to its founders — and has yet to turn a profit.

Pretty sweet, huh? You start a business. The feds get behind it. The business never makes a penny. But you leave with a cool $20 million.

Good work if you can get it. And the people who can’t get it — the people without connections to the elite — are getting pretty upset about it.

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About Bill Bonner:

Since founding Agora Inc. in 1979, Bill Bonner has found success in numerous industries. His unique writing style, philanthropic undertakings and preservationist activities have been recognized by some of America’s most respected authorities. With his friend and colleague Addison Wiggin, he co-founded The Daily Reckoning in 1999, and together they co-wrote the New York Times best-selling books Financial Reckoning Day and Empire of Debt. His other works include Mobs, Messiahs and Markets (with Lila Rajiva), Dice Have No Memory, and most recently, Hormegeddon: How Too Much of a Good Thing Leads to Disaster. His most recent project is The Bill Bonner Letter.